Consumer prices are rising faster than paychecks once more, delivering a fresh blow to American workers already struggling with elevated costs.
Inflation climbed 3.4% in August from a year earlier, according to data released by the U.S. Bureau of Labor Statistics, outstripping average hourly earnings growth of just 3.1% over the same period.
Real average hourly earnings, adjusted for inflation, fell 0.1% from July and were down 0.3% from a year earlier, meaning workers are effectively earning less in real terms.
“A substantial number of Americans are worse off, their incomes are not keeping up with the price increases right now,” said Heather Long, chief economist at Navy Federal Credit Union.
Long identified April as a clear turning point, following a period stretching from May 2023 during which wage growth had generally managed to outpace inflation and restore some purchasing power.
“The basics are that inflation is wiping out wage gains,” Long said, noting the reversal came just as many analysts had begun to feel cautiously optimistic about household finances.
“That’s what’s just hard to watch. Things were getting better, and now that improvement has blown up,” she added.
Energy costs are a central driver of the renewed pressure, with gasoline prices surging 3.9% in August alone, accounting for more than one-third of the consumer price index’s monthly gain.
Diesel prices touched $6 per gallon for the first time, amid fuel supply disruptions tied to ongoing conflicts in Iran and Ukraine, compounding cost pressures across the broader economy.
Navy Federal previously estimated that gasoline prices jumped 21% in March, helping push its measure of car ownership costs to a record high for its roughly 15 million members.
Long said it is difficult to envision inflation falling substantially while geopolitical pressures persist, particularly as wage growth continues to cool from its pandemic-era highs.
“It’s going to be tough for a long time,” she said, warning that relief may not arrive quickly enough to ease financial strain for most households.
The best-case scenario Long sees is for wage growth and inflation to converge again around the beginning of 2027, though she cautioned that even that outcome would feel painful for ordinary Americans.
“But that’s still going to feel pretty miserable on Main Street if inflation equals wage growth,” Long said.
Consumer spending, which accounts for roughly two-thirds of U.S. economic activity, is already showing signs of strain as households shift their habits in response to tighter budgets.
Data from YouGov shows that higher-income shoppers are increasingly turning to Costco for groceries, while Walmart Supercenter remains the preferred destination for middle- and lower-income households.
Navy Federal’s internal spending data reflects a similar migration toward warehouse and discount retailers as members try to preserve the value of every dollar they earn.
“People who used to shop at Whole Foods are now at Costco, Aldi, and so you can see that people are still really trying to stretch every dollar,” Long said, noting the shift is appearing “almost across the income spectrum.”
“The frustration is real on inflation and affordability,” she said.
